Company Perspectives:

Huffy Corporation will be a leading supplier of name brand consumer products and retail services designed to improve consumer lifestyles and enhance the business performance of its retail customers.

Company History:

The largest manufacturer of bicycles in the world, Huffy Corporation is the parent company of four wholly owned subsidiaries that operate in two distinct business segments: consumer products and retail services. Touting itself as "America's First Choice," Huffy Bicycle Company manufactured a complete line of bicycles for adults and children, including an electric scooter that debuted in 1999. Huffy Sports Company ranked as the largest supplier of National Basketball Association (NBA) backboards in North America. On the retail services side of its business, Huffy owned two subsidiaries, Washington Inventory Service and Huffy Service First. Washington Inventory Service employed a national workforce that provided inventory service to retailers. Huffy Service First operated as the only national concern to provide in-store and in-home product assembly and repair services to retailers.

Origins

Huffy grew out of the Huffman Manufacturing Company, which was founded in 1924. Founder Horace M. Huffman, Sr., learned the manufacturing business from his father, George P. Huffman, who owned the Davis Sewing Machine Company from 1887 to 1925. Taking advantage of the growing automotive industry, Horace Huffman's young company made equipment that could be used in service stations. Working out of a factory on Gilbert Avenue in a noisy section of Dayton, Ohio, near the Pennsylvania Railroad tracks, the first Huffman employees are credited with inventing a rigid spout that could be used to dispense motor oil from 50-gallon drums. The company grew quickly through the 1920s and 1930s and its line of service station equipment expanded. When it incorporated in 1928, the company posted earnings of $3,000.

In 1934 Horace Huffman announced plans to manufacture bicycles after sensing that they would become a popular mode of transportation during the Depression. In the beginning, production rates hovered at 12 bikes per day. Within two years, this rate increased to 200 daily. However, the company was still not producing fast enough to keep pace with its competition and Huffman suffered several setbacks in the beginning. The Firestone Tire and Rubber Company was a primary bike customer, but in 1938 Huffman lost a major portion of the account because it could not match Firestone's demand.

But the solution was not far away. Two years earlier, Horace Huffman, Jr., who was known by the diminutive "Huff," had joined the company on a full-time basis. After short stints as service manager and sales manager, he became works manager and converted the production process to a straight-line conveyerized assembly line. It was just the edge the company needed, and by 1940, bicycle production doubled and sales figures were nearing the $1.5 million mark. Huffman's improved production rate caught the eye of the Western Auto Company, which became a major customer, and also brought Firestone back into the fold.

The outbreak of World War II necessitated a shift in production. The company joined the thousands of other businesses that were vying for government contracts, and was able to secure an order for primers, an artillery shell part. The increased business brought Huffman's sales to nearly $2.8 million in 1942. The following year, the federal government placed an order for 4,000 bicycles. At this point, much of the work was being done by women who were filling the void left by the vast numbers of men who had been inducted into the armed forces. The later part of the war proved to be difficult as the production of consumer products in all industries virtually ceased and Horace, Sr., suffered a fatal heart attack in 1945.

Post-World War II Growth and Diversification

The younger Huffman was elected president and immediately had to face the challenge of sustaining production in the postwar period with limited supplies. The government's allocation program, he knew, would not provide enough materials to allow the company to compete at its prewar levels. After attending a seminar on "Work Simplification," Huff taught the procedure to his managers and then held a similar workshop for the company's major suppliers. By meeting the problem head-on, Huffman was able to help suppliers increase their own output and to raise production levels. For two years, the company was able to run two shifts a day without experiencing the traditional slowdown during the winter months. Sales for each of the two years exceeded $10 million.

Then, in 1949, the company ran into the postwar recession. However, two developments allowed the company to survive. First, the Huffy convertible bicycle was introduced and was instantly popular. The bike also brought the name Huffy to the forefront of the bicycle industry. The second development occurred as a result of the company's search for a product that could be manufactured during the winter months. The decision to produce lawnmowers was announced in December 1949.

As a result, the company quickly outgrew its physical plants, and in the early 1950s Huffman acquired a building in Delphos, Ohio, and moved the Automotive Service Equipment division to that location. New facilities were built in Celina, Ohio, to house the bicycle and lawnmower divisions. The Dayton manufacturing plant on Gilbert Avenue was closed and the general offices were moved to Davis Avenue. In 1959 Huffman opened its bicycle plant in Azusa, California.

By 1960 Huffman was the third largest bike manufacturer in the United States. In 1962 Horace Huffman, Jr., was named chairman and Frederick C. Smith became president and CEO. Smith had been materials manager during the crucial postwar period and was credited with strengthening the company's relationship with its suppliers.

In 1964 Huffman expanded its Outdoor Power Equipment division with the acquisition of Diele & McGuire Manufacturing. It was not an entirely successful expansion, however, and the division continued to lose money over the next decade. That same year, the Huffman corporate offices were moved to their current location in Miamisburg.

Huffman went public with its listing on the American Stock Exchange in 1968 and sales reached $42 million the following year. Stuart Northrup, a former Singer Sewing Machine executive, replaced Smith as president in 1972. By 1973 Huffman employed 2,500 workers at five locations.

Throughout the 1960s and early 1970s, Huffman enjoyed continued growth as the market for adult bicycles grew. More and more adults were turning to bikes for exercise and as a means to cut energy costs. Until the end of the 1960s, nearly half of all bicycles in the United States were sold through small independent bike shops that offered personal customer service. In the 1970s, the introduction of mass merchandise retail chains that stocked large quantities of consumer goods and sold them at discount prices opened up a new market for bike sales. Because British-owned Raleigh Cycle was firmly entrenched as the leading supplier to the independent shop owner, Huffman set its sights on the retail chains and developed a ten-speed that required the bare minimum of assembly and service.

The company's growth trend hit a snag in 1974, however, as a new recessionary period brought on an industrywide slump. From its peak in 1973, bicycle sales dropped 50 percent by 1975. Huffman was forced to close its Celina plant for two months and lay off 25 percent of its workers.

Prior to the recession, foreign competition was also putting pressure on U.S. bike makers. In 1972 foreign imports accounted for 37 percent of the U.S. market. The devalued U.S. dollar, however, cut this share to 15 percent by the end of the 1970s. New federal regulations setting safety standards for bicycles also cut into the sale of foreign models. As the industry revived itself toward the end of the 1970s, Huffman decided to take an aggressive marketing stance. Children again became the primary focus of the bike industry and Huffman introduced a new flashy, motocross-style bike called Thunder Trail. Designed to look like a motorcycle with waffle handle-grips, knobby tires, and racing-like number plates on the front, the new models also sported bright, jazzy colors and decals. Not content to settle for what they hoped might sell, Huffman held focus groups in shopping centers to determine which features were the most popular. In addition, a greater portion of advertising dollars was spent on television commercials, particularly during the hours when children's programs aired.

The popularity of the Thunder Trail bike made Huffman the number one producer of bicycles in the United States by 1977 and all of the laid-off workers were called back. Net sales for 1977 were $130 million, a 21 percent increase from the previous year.

Although Huffman was still the leading producer of gasoline cans, oil can spouts, oil filters, and jack stands, the Automotive Equipment Division was only accounting for ten percent of the company's sales. Bikes and bike accessories accounted for an overwhelming 90 percent. The Outdoor Power Equipment division, which had been struggling for years in the lawnmower market, was finally sold in 1975. The sale brought in a much needed $10 million in cash. Realizing the need to diversify, Huffman acquired Frabill Manufacturing, a maker of fishing and basketball equipment, in 1977.

Until then, half of Huffman's bicycles were sold under private labels. By the end of the 1970s, however, the company decided to devote more energy to promoting its own brand name. Part of this effort included the decision, in 1977, to change the company name to Huffy Corporation. During this period, Huffy's management also opted not to enter the moped manufacturing field because of doubts about the motorized bike's potential in the United States. Instead, $5 million was spent to expand existing production facilities.

In 1980 Huffy posted its fifth straight year of record earnings and announced plans to open a third plant in Ponca City, Oklahoma. However, despite its strong financial position, Huffy was not immune to the problems that most U.S. businesses experienced in the 1980s. For one thing, production costs were rapidly increasing. In 1982 Harry A. Shaw III was named CEO and immediately embarked on the unpopular road to plant closings and layoffs. Shaw spearheaded the consolidation of all bike manufacturing operations into the Celina plant and sold the Automotive Products Division for cash. Huffy then invested more than $15 million in advanced robotics and new production equipment. The changes resulted in an increase in production capacity by 5,000 bikes a day and a 14 percent cut in production costs. Another $15 million was earmarked to improve computer-generated manufacturing in the bike plant by 1991.

A licensing, sales, and manufacturing agreement with Raleigh Cycle was also cemented in 1982, giving the company the opportunity to tap the high-specification bike market. However, the venture did not prove to be an asset and Huffy sold its rights in 1988.

With bike sales still accounting for 90 percent of the company's sales, the need to diversify was as evident as ever. In 1982 Huffy acquired Gerico, a maker of infant car seats and strollers, and YLC Enterprises, a provider of product assembly services for retail consumer purchases. The former was organized as Gerry Baby Products and the latter as Huffy Service First. Washington Inventory Service, a nationwide inventory taking service, was acquired in 1988. In 1990, Huffy acquired Black & Decker's stake in True Temper Hardware and capital stock in True Temper Ltd. in Ireland for $55 million. A manufacturer of garden and lawn tools, the company claimed approximately 30 percent of the market.

Foreign Competition: 1990s

Buoyed by the completion of its diversification campaign, Huffy entered the 1990s with renewed confidence. As the decade began, the company was collecting nearly half its earnings and sales from its disparate, non-bike businesses, which were beginning to develop their own momentum. Huffy Service First, for instance, had begun to expand its services by assembling gas grills, lawnmowers, and patio furniture for mass retailers in addition to bikes. Diversification engendered its own problems, however, particularly with the newest addition to the Huffy portfolio, True Temper. In an effort to gain market share, Huffy management reduced prices for True Temper lawn and garden equipment, which resulted in a $5 million loss for the division in 1992. Huffy experienced other difficulties during the early 1990s as well, misfiring in its attempt to take advantage of the popularity of mountain bikes. The company introduced a cross-trainer bike in 1992 that represented a hybrid of a road bike and mountain bike, but following an expensive promotion campaign, sales of the crosstrainer were lackluster. The problems with True Temper and the ill-conceived introduction of a crosstrainer paled in comparison to Huffy's overriding problem during the 1990s, however, and that was contending with Asian competitors. Benefiting from lower production costs than their U.S. counterparts, Asian manufacturers enjoyed significant success in the U.S. market during the 1990s, causing considerable havoc for domestic bike producers. Huffy, holding a 30 percent share of the $1.5 billion U.S. market, bore the brunt of the damage stemming from the incursion of Asian producers and saw its profitability sag. The worst period for Huffy arrived in 1995, when the company recorded a crippling $10.5 million loss. For the remainder of the decade, Huffy management devoted itself to curing the ills that led to the devastating loss and implementing measures to ensure that it never happened again.

In the wake of 1995's loss, a rebuilding process began that saw the company reduce its size in some departments and expand into new business areas. Management cut workers' wages, considered new product lines to stimulate profits, and looked to divest underperforming businesses. In 1997, Huffy sold Gerry Baby Products Co., gaining $73 million from the divestiture, and purchased Royce Union Bicycle Co., a Hauppauge, New York-based maker of high-end bikes. The company also acquired bankrupt Sure Shot International, a manufacturer and distributor of basketball goods, organizing the $1.5 million purchase into its Huffy Sports Co. subsidiary. As these transactions were being completed, the company entered a new segment in the bike market, introducing the first Huffy bike motocross, or BMX, model in 1997. At the time of Huffy's entry into the market segment, BMX models represented the only segment in the bike industry recording sales growth. By the end of 1997, the company's financial results revealed the influence of the changes implemented during the previous two years. The news was encouraging. After posting a $10.5 million loss in 1995, Huffy recorded $10.4 million in net income in 1997.

Although Huffy management had directed a remarkable turnaround between 1995 and 1997, the executives still had to contend with the aftereffects of the mid-1990s crisis: their restorative work was not yet completed. One contentious issue stemming from the $10.5 million loss involved Huffy workers at the Celina, Ohio, bicycle plant. When the losses mounted back in 1995, the workers agreed to a 20 percent wage cut to keep production from moving to Huffy's bike plant in Farmington, Missouri. In April 1998, the workers' union met with Huffy management, demanding a 20 percent wage increase and additional raises to compensate for the benefits and wages lost since 1995. The negotiations stalled, with Huffy offering less than the workers demanded. In July, hope for a settlement disappeared entirely when Huffy announced it was closing the Celina plant and laying off all of the facility's 1,000 employees, representing 25 percent of the company's total workforce. Although unpopular in Celina, Huffy management was determined to make the company's bike operations profitable in the long term.

As Huffy exited the 1990s, it continued to pursue the strategy of paring away assets, acquiring new properties, and entering new business areas. In 1998, the company's Washington Inventory Service subsidiary (the second largest inventory counter in the nation) acquired Denver, Colorado-based Inventory Auditors, Inc., with 42 offices operating in 23 states. The acquisition greatly strengthened Washington Inventory Service's position in its industry, since Inventory Auditors ranked third in the industry. The addition of Inventory Auditors, combined with the company's divestitures and efforts to reduce production capacity and increase efficiency, impressed Wall Street, fueling a 25 percent increase in Huffy's stock value during the last six months of 1998. For 1999, the company had further significant changes in store, none more dramatic than the announcement that it was selling True Temper Hardware Co. In February 1999, Huffy sold its garden tools and wheelbarrow business to U.S. Industries, Inc. for $100 million, stripping the company of $123 million in sales. With the proceeds from the divestiture, Huffy planned to reduce its short-term debt and to finance the company's ongoing program of buying back its shares. The last year of the decade also saw Huffy introduce an electric scooter called Buzz that was rechargeable from a standard 110-volt outlet. To strengthen its foray into the electric scooter segment, Huffy reached an agreement in June 1999 with ZAPWORLD.COM to sell the company's stand-up version of an electric scooter, called ZAPPY, through Huffy's distribution channels.

Statistics in the 1990s pointed to a fiercely competitive global market for bike manufacturers in the 21st century, auguring a continuation of the battle between Huffy and foreign competitors in the future. Between 1994 and 1998, comparable retail bike prices dropped 25 percent in the United States largely because of the wave of foreign imports, plunging ten percent in 1997 alone. In 1997 nearly 60 percent of the bikes purchased in the United States were produced by foreign manufacturers who incurred significantly lower production costs than U.S. manufacturers. To combat eroding profit margins, Huffy planned to further reduce costs and to eliminate excess production capacity, while developing a more competitive mix of domestic and non-domestic products. For Huffy to maintain its leadership in the industry during the 21st century, much depended on the company's success in overcoming the challenges presented by its overseas competitors.